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Self’s assessment: Looking back – and forwards

Some new year’s tax resolutions – for the press, advisers and politicians.

Some new year’s tax resolutions – for the press, advisers and politicians

The Roman god Janus was often depicted with two faces, looking to the future and the past. And so, in this new year’s piece, I will take a look at some of the things I said in 2019, and try to assist those who would like some new year’s tax resolutions.

In June, I quoted Vanessa Houlder (Tax and the media, Tax Journal, 14 June 2019) who said that “the tax debate has changed from being boring and poorly understood…to impassioned and poorly understood”. So let’s look at some examples of how we might make it better.

First, the Budget. As we didn’t have one at all in 2019 (so I couldn’t comment on it), we must be due for one soon. Without commenting on what should, or should not, be in it, I’d remind you of what I said in July (Politicians’ tax promises, Tax Journal, 12 July 2019): we should all ask politicians about their tax promises, particularly when they appear to have found a magic money tree. So my Budget new year resolution is to pay less attention to what is in the press releases, and more to what is in the Red Book – in particular, the table which sets out the costs or receipts of all the policy decisions (Table 2.1 in the November 2018 Red Book), which shows that by far the largest measure was the increase to the personal allowance, while the net changes to Corporation Tax were relatively small. Often a relatively trivial measure grabs the headlines (pasty tax, anyone?), while the more important measures go unnoticed.

Next, a new tax year resolution. As everyone knows, the tax year begins on 6 April for individuals but 1 April for companies: and of course 6 April was originally Lady Day (25 March) until the new year was moved to 1 January and 11 days were added in the move to the Gregorian calendar in 1752. Moving on from tax trivia, I wrote in April 2019 (Employed or self-employed?, Tax Journal, 5 April 2019) about the difficulty in determining whether a contractor is employed or self-employed, and noted that changes to the way IR35 operates will apply to the private sector from 1 April 2020.

That date is now very close, but the changes may be delayed as Sajid Javid has promised a further review. The uncertainty makes it difficult for both engagers and contractors
to plan, particularly as a continuing string of First-tier Tribunal decisions has made it clear that HM Revenue & Customs’ (HMRC) view of an individual’s employment status is not always correct. My new tax year’s resolution is to be prepared: both engagers and workers should review their contractual terms, particularly to be clear about who will bear the risk if employment status is not as expected. And also be prepared for unintended consequences – some large companies, such as banks, have decided that they would prefer simply to insist that all contractors move onto the payroll. This brings an NIC cost (as I explained in my earlier article) and my guess is that the cost is likely to be borne by the contractor rather than the bank, with an effective reduction in take home pay.

We might see some rapid improvements in the tax system and in the level of resources for HMRC

Third, a digital tax resolution. No, not Making Tax Digital, but the taxation of multinational digital companies – which is fast becoming a mess. While the OECD tries hard to find a compromise which will please everyone – an impossible task – unilateral measures are proliferating, such as the UK’s Digital Services Tax. Some think that everything could be solved if we moved to a new system of unitary tax. As I wrote in November (Will Labour make the tech giants pay their ‘fair share’?, Tax Journal, 8 November 2019), I don’t have a fundamental problem with the principle, but I think that in practice it may well be no better than the current system, flawed though that is. But does it matter as much as people think it does? Possibly not: although there is a lot of focus on whether companies pay their fair share, Corporation Tax brings in under 10% of the UK’s total tax revenues – and that percentage has been relatively stable over the years. So changing the international tax system will probably not make all that much difference: even if a new system means that some companies pay more UK tax, others will probably pay less (as overall, the UK is still a capital exporting economy). My digital tax resolution is to remember that other taxes are more important than Corporation Tax, and to encourage the media to focus more on the ‘big three’ of Income Tax, national insurance and VAT.

And finally, a new year’s resolution for politicians. This is an idea which I came up with some years ago, and as it has not yet been achieved I’m happy to recycle it: politicians should be required to complete their own tax returns, without professional help and using only HMRC’s website and telephone helplines. I think we might see some rapid improvements in the tax system, and in the level of resources for HMRC, if they were to adopt my proposal.

A Happy new year to you all.

For more information, please contact Heather Self.